APPENDIX C
FORMS OF BUSINESS ORGANIZATIONS
Below are brief descriptions of each problem. These descriptions are accompanied by the estimated time (in minutes) required for completion and by a difficulty rating. The time estimates assume use of the partially filled-in working papers.
Problems
C.1
E-Z Manufacturing Company
LO C-3,
Students are required to calculate partners’ share of net income, determine
C-10
the effects of income taxes for partners, and prepare a statement of partners’ equity.

15 Easy

C.2
LO C-6,
C-7

Waffon Corporation
Students must analyze the effects of stockholders’ investments, net income, and dividends on stockholders’ equity.

15 Easy

C.3
LO C-10

Guenther and Firmin
Students are required to distribute net income …show more content…

Most passive investors would not participate in an investment which did not provide for an absolute limit as to the amount of possible loss.
The second reason for organization as a limited partnership is to centralize responsibility for managerial decisions with the two experienced real estate developers, who would be the general partners. As the 50 investors are scattered throughout the state, they clearly will not be actively involved in the daily management of the business. It is both unnecessary and undesirable for each of these investors to have the right to bind the partnership to contracts. A limited partnership restricts this authority to the general partners.

5.

Salaries of owner-managers are an expense deducted in arriving at the net income of a corporation, but no such deductions are generally made in determining the net income of a partnership. Also, corporate net income has been reduced by corporate income taxes, but no tax has been paid on partnership net income, which is taxable to the partners personally.

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6. Partner Reed must report her share of the net income, $39,000, not the amounts of cash or other assets she withdraws from the business.
7. a.

Owners’ liability for debts of the business. Partners are jointly and